Handling Whistleblower Claims: New Opportunities Create More Complex and Emerging Issues for...

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Title: Handling Whistleblower Claims: New Opportunities Create More Complex and Emerging Issues for Employment Lawyers

MARCH 20, 2014 |


SOX 806 – Who is Covered?

• Company that registers a class of securities under Section 12 of the 1934 Securities and Exchange Act

• Company that is required to file reports with the Securities Exchange Commission under Section 15(d) of the 1934 Act

• A subsidiary or affiliate whose financial information is included in the consolidated financial statement of one of these


SOX 806 – Who is Covered?

• A nationally recognized statistical rating organization

• Any “officer, employee, contractor, subcontractor or agent of such company or nationally recognized statistical rating organization”


“Officer, Employee, Contractor, Subcontractor or Agent”

• Lawson v. FMR, No. 12-3 (Mar. 4, 2014)– SOX protects employees of a public

company's private contractors and subcontractors (and their babysitters)

– Essentially same decision as ARB decision Spinner v. David Landau & Assocs. LLC, No. 10-111 (ARB May 31, 2012), but did not defer to ARB

– Majority declined to adopt (but did not rule out) limiting principles


Impact of Lawson

• What is the statute’s reach? – Employees of 5,000 public companies– Employees of 6 million private companies– Untold millions of employees of public

company employees and officers • Impact on mutual fund industry and law and

accounting firms, private businesses generally• Steps private companies should take to prevent

SOX claims• Can OSHA handle?


Sarbanes-Oxley Protected Conduct

• Sylvester v. Parexel Int’l, LLC, ARB 07-123, 2011 WL 2165854 (May 25, 2011) – Protected conduct not limited to disclosures of

shareholder fraud and C need not prove each element of fraud (scienter, materiality, etc.)

– Disclosure about a potential violation protected– Abandons prior ARB’s Platone decision requiring that

disclosure “definitively and specifically relate” to a violation of one of the categories of fraud or SEC rule violations

– Iqbal/Twombly pleading standard does not apply to claims filed at OSHA


Sarbanes-Oxley Protected Conduct

• Will federal courts adopt Sylvester?– Weist v. Lynch, 710 F.3d 121 (3rd Cir. 2013)– Lockheed Martin Corp. v. Administrative

Review Bd., 717 F.3d 1121 (10th Cir. 2013)– But see Gauthier v. Shaw Group, Inc., 2012

WL 6043012 (W.D.N.C. 2012); Andaya v. Atlas Air, Inc., 2012 U.S. Dist. LEXIS 78654, at *10 (S.D.N.Y. 2012); Nielsen v. AECOM Tech. Corp., 2012 WL 6200613 (S.D.N.Y. 2012)


Dodd-Frank Act Protected Conduct

• 3 employment anti-retaliation provisions: Securities Exchange Act, Commodity Exchange Act (“SEA”), Consumer Financial Protection Act

• Under SEA, protected activity if:

– Provided information to the SEC ;

– Provided assistance in any SEC;

– Made required or protected disclosures under the Sarbanes-Oxley Act of 2002 . . .


Dodd-Frank Act Protected Conduct

• Does it protect internal disclosures?– No -- Asadi v. G.E. General (USA), L.L.C.,

720 F.3d 620 (5th Cir. 2013) – Yes – a number of district court have adopted

a contrary position, including two opinions post-Asadi

– Yes – SEC filed Second Circuit amicus brief


Mandatory Arbitration

• SOX claims are exempt from mandatory arbitration

• Dodd-Frank Act claims appear to be subject to mandatory arbitration– Murray v. UBS Securities, LLC, No. 2:12-cv-

05914-KPF (S.D.N.Y. Jan. 27, 2014)


Forum Selection

• Kick-out provision in SOX may become more attractive due to recent jury verdicts– Zulfer v. Playboy (C.D.Ca. 2014) $6M– Jones v. Southpeak Interactive (E.D.Va.

2013) $178,500 in compensatory damages reduced to $123,000


Protections for Employees of Government Contractors

• Broader scope of protected conduct under the False Claims Act’s anti-retaliation provision post-2009 FCA amendments– Protects “other efforts to stop 1 or more

violations of [the FCA]”• Post-Nassar, courts are imposing a “but for”

causation standard


NDAA Whistleblower Provisions

• Sections 827 and 828 of NDAA became effective July 2013

• Broad scope of protected conduct– Gross mismanagement, gross waste, abuse

of authority;– violations of law, rule, or regulation relating to

contracts, including competition for a contract; or

– substantial and specific danger to public health or safety


NDAA Whistleblower Provisions

• Employee-favorable causation standard• Requires exhaustion at agency OIG• 210-day kick-out provision• Damages include reinstatement, backpay,

compensatory damages, and attorney fees and costs.


Hot Topics

• Settlement issues– DOL review of confidentiality clauses

• Parallel investigations• OSHA enforcement trends• September 2013 OSHA order awarding $1.9

million to a former CFO• Managing thorny confidentiality issues• Extraterritoriality


Whistleblower Filings at OSHA

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